Paradip petchems postponed

After years of planning and crossing many hurdles IOC has now decided to defer the petrochemical portion of its Paradip project. The decision comes at a time when the company is struggling to cope with huge losses on account of record high crude oil prices and the government’s reluctance to raise retail fuel prices.

Project costs have also ballooned and the company estimates that the refinery/petrochemical venture at Paradip would cost Rs420-450bn ($10.20-10.98bn), up from its earlier estimate of Rs260bn (US$6.34bn).

The paraxylene (PX), styrene and polypropylene (PP) units that were earlier planned for completion with the refinery would now be completed at a later date.

The company’s earlier plans included a second phase for petrochemicals (cracker and derivatives) to be completed a couple of years after the refinery. The fate of this phase is now unclear.

The postponement of the PX, styrene and PP units raises questions on the future of IOC’s petrochemicals business. The company has often stressed that it is keen to expand in this area. The Panipat cracker which is likely to be up and running by 2010 was the first major move and Paradip would have helped the company consolidate its position.

Given the outlook for crude oil prices (inching towards $200/bbl), I will also not be surprised if more Indian refiners, especially the state-owned ones, have second thoughts about entering the petrochemicals business.